An analysis of income polarisation in rural and urban China

Abstract

The purpose of this article is to contribute to the analysis of Chinese income inequality by focusing more specifically on income polarisation, which captures both alienation (i.e. heterogeneity between income groups) and identification (i.e. homogeneity within groups). The empirical investigations conducted as part of this research are based on the China Health and Nutrition Survey data from 1989 to 2006 and indicate that Chinese household income is strongly polarised. After a period of stagnation between 1989 and 1997, the degree of polarisation increased significantly between 1997 and 2006, indicating the constitution of identified groups in middle and upper income ranges. Although the level of income polarisation is higher in rural areas, the increase in polarisation is far more conspicuous in urban areas, suggesting that the risk of social tensions is more pregnant in Chinese cities. The analysis of the sources of income polarisation in rural areas shows that the increase in polarisation is closely linked to non-agricultural opportunities. In urban areas the emergence of identified groups in middle and upper income classes can be explained both by the sharp decline in subsidies and by the liberalisation of the urban labour market and state enterprises.